Selling

The “S” word alone makes most investors uneasy.

They find the “B” word, “buying” more pleasant.

The reason for this is perhaps best explained in a book written by Justin and Robert Mamis titled “When to Sell.”

Here are some pertinent excerpts:

*Stocks are bought not in fear but in hope. No matter what the stock did in the past it assumes a new life once a purchaser owns it, and he looks forward to a rosy future – after all, that’s why he singled it out in the first place. But these simple expectations become complicated by what actually happens. The stock acquires a new past, beginning from the moment of purchase, and with that past comes new doubts, new concerns, and conflicts. The purchaser’s stock portfolio quickly becomes a portfolio of psychic dilemmas, with ego, superego, and reality in a state of constant battle.

*The public is most comfortable when they are sitting with losses, because if their stocks are down from where they bought them, they don’t have to worry about selling them. Once he’s got a loss, the typical investor is sure he isn’t going to sell. He bears the lower price because in his mind it is temporary and ridiculous: it’ll eventually go away if he doesn’t worry about it. So, selling at a loss becomes absolutely out of the question. And since it is out of the question, and his mind is made up for him; the struggle of any potential decision vanishes and he’s able to sit comfortably with the loss.

*To the public mind, selling is NEVER sound. It always conveys the possibility of being wrong twice: first, admitting that they’ve made a buying error; second, admitting that they might be wrong in selling out. And if the stock has actually, gone up, they’re tormented: should they take the profit or hold for a bigger one? That creates anxiety, and anxiety breeds mistakes. But as long as they’ve got losses, and never have to decide, they can sit back comfortably and dream instead.

*Through the entire market cycle lurks the fear of finalizing the deed of taking it from dream to reality by selling. By not selling, by tightly holding on to his stocks, the investor never has to face reality.

I provide this story as a testament of something I learned in my 40-year career in the investment brokerage industry.

Over those decades, I had many times where I struggled with the decision regarding when to sell a position I had bought. That was at a profit or at a loss afterwards. It didn’t matter which. It was always difficult to sell.

I learned over the years that one was incapable of knowing the future of what any particular stock would do.

Decisions were made at the time one bought something based on the information at hand. But in the world of stock markets things can change quickly and I learned that if I was going to buy something with the hope I would profit, I would also need an exit strategy for when to get out of that position.

Whether I exited at a profit or whether I exit to prevent more losses, one way or another I needed an exit plan to help remove the emotion of selling from the investment process.

Many have heard me say “buy and hope is not an investment strategy”.

Yet that is what most do.

I also say, “it’s much easier to buy something than it is to sell it”. This can apply to many things one might buy and then decide they don’t want it or need it anymore.

The previous quotes from the book “When to Sell” confirms what I learned over the years and what I say today and why I have an exit strategy for every stock position I own personally or in my model now and moving forward.

It’s a lot more work to manage money this way compared to the strategy of buying a position and believing that if you hold it long enough, it will work out. Maybe that will work and maybe it will not.

But that is not good enough for me today and what I believe is a speculative bubble environment for stocks.

Anyone who has been invested in and following my Tactical (Stock) Model Portfolio know that I have specific entry and exit levels we follow for all the positions.

Aside from the fundamental analysis we research to determine positions we feel of value, we also apply technical analysis using Elliot Wave Theory and Fibonacci Ratio Formulas to help guide and determine our entry and exit price levels.

In doing this we remove the emotional attachments to the stock positions and focus solely on the data and facts we have.

It’s not a perfect science; however, we have found it very strategic and useful regarding how we manage our decision making and trading decisions regarding stock positions we buy and sell in our Tactical Model. Specific prices we buy, and target sell prices we are looking at the same time we buy. When / if things change, we reassess our data and if necessary, we change. However, there is no “hope” in any of this process.

If anyone would like to discuss this topic in more detail, please contact our office to book a phone or Zoom meeting.

Stephen Bishop